This is Big Deal

I’m old enough to remember when we had “Fed Watchers” as a very expensive job function on Wall Street.  Their track record was probably as bad or worse than the average meteorologist on the local news, and they only had eight meetings a year to predict.

I was already amazed, as a bond guy, when the Fed started telling us how long they thought they would hold short rates at zero (until at least second half of 2013).  Comments here and here.

Today comes the news that the Fed will share its musings on the future path of their Fed Funds rate as part of their release of meeting minutes.  Gadzooks!  Think how far this is from the days when they told us exactly nothing, and people got paid millions of dollars to guess what the current policy might be.  Fuggedaboutit if you wanted to know what they were thinking about the future.

Never thought I’d see this day.

hh

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5 Responses to This is Big Deal

  1. Conscience of a Conservative says:

    Maybe I’ve become a Fed Basher, but when I think of transparency I’m not inclined to be seeking guidance on Fed Funds rates, but rather accountability on Lending programs and the balance sheet. All these programs should be fully audited and their results released to the public after a three year window.

  2. Conscience of a Conservative says:

    Howard, this move is all about maintaining and leveraging the Fed’s zero interest rate policy. This policy did not work in Japan, and it’s not working here. What we’re seeing is a transfer of wealth from savers to debtors which is really hurting those saving for or in retirement. It’s arguably responsible in part for the blow-up of MF global, and we’re beginning to see the effects on pensions(The FT ran a story on Jan 2 that lower rates increase the present value of pension liabilities and low rates also mean that Treasury bonds or safe fixed income investments can’t be used to fund those liabilities). The Fed’s current actions are laying the groundwork for our next crisis.

  3. Conscience of a conservative says:

    Apparently someone else caught on and pointed out the following paragraph in a NY Times piece

    In January 2012 the Fed board adopted a plan to publish a forecast of its own actions, inaugurating a policy that is intended to magnify the power of those actions by shaping market expectations.

    http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_reserve_system/index.html

    • hhill51 says:

      I guess we (and Ron Paul) aren’t alone in thinking the Fed is trying a bit too hard to control the economy.
      .
      Of course, I’ve been telling my friends for years that the “dual mandate” of full employment and tame inflation is pure smokescreen. When push comes to shove, the only mandate the Fed actually follows is to preserve and protect the banking system. Period.

      • Conscience of a Conservative says:

        It’s worse Howard, the Fed is openly advocating the breaking of contract law as a way to fix the banking crisis.
        ———————————–
        To prevent a “bail-out” of lenders, Mr Dudley said that creditors should be required to reduce borrowers’ “excess debt” as a condition of taxpayer aid.

        However, in a comment likely to displease investors in US mortgage bonds, the owners of borrowers’ first-lien debts should front the cost of reducing borrowers’ loan balances – rather than unsecured creditors such as second-lien holders and the owners of borrowers’ credit card debt, Mr Dudley said.

        Investors in US mortgage bonds not guaranteed by US-controlled home loan groups Fannie Mae and Freddie Mac have consistently complained over the past few years that they have been forced to swallow losses while unsecured creditors, such as owners of second liens and credit card debt, have dodged them. Pimco, Blackrock and pension funds are among the investors that have raised objections.

        “Mortgage contracts, servicing agreements and commercial code all recognise the priority of secured liens over unsecured liens,” said Joshua Rosner, a housing finance expert and managing director at independent research firm Graham Fisher & Co. “To recommend ignoring legal contracts, and give investor money to banks that own second liens because servicers have under-invested and can’t meet their obligations, is outrageous.”

        The four largest mortgage servicers in the US – Bank of America, JPMorgan Chase, Wells Fargo and Citigroup – are also the largest owners of second-lien mortgages and home equity lines of credit.

        http://www.ft.com/intl/cms/s/0/fcb7aa34-38b5-11e1-9ae1-00144feabdc0.html#axzz1ifRzfNbz

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